The following is from a 2018 article on Motley Fool. The article claims a problem facing Social Security is inequality. How’s this for a catchy headline?
Income inequality is wreaking havoc on Social Security
First, it creates a revenue collection issue. The reason? Social Security’s 12.4% payroll tax on earned income (wages, interest, and dividend income) is only applicable up to $128,400 in 2018. Although this figure typically rises in step with the National Average Wage Index on a percentage basis, it still allows the upper echelon of wage earners to escape with some or most of their income being exempt from the payroll tax. Per the Social Security Administration, the amount of earnings exempted from the payroll tax has quadrupled from about $300 billion in 1983 to around $1.2 trillion in 2016.
First, interest and dividends are not and never have been subject to Social Security taxes. Next, the benefits under Social Security are based only on taxable wages and then the benefit calculation is skewed toward lower income workers as a way to transfer wealth. So the amount of earnings exempt is irrelevant unless you want to turn what was to be a self-sustaining program into a new welfare plan by taxing income not counted for future benefits.
Many of the super rich cannot collect Social Security benefits because they don’t have taxable income. So when critics talk about inequality, they are not referring to the Waltons or Bill Gates, but to upper middle class Americans earning a paycheck above the taxable wage base currently at $137,700, that’s who they call the upper echelon.
The second problem is that the well-to-do don’t have the same financial constraints as lower-income individuals and families may encounter when it comes to getting preventative medical care and medicine. Though the passage of the Affordable Care Act helped for a short time, the fact remains that being able to receive (and pay for) medical care has allowed the life expectancies of wealthier individuals to handily outpace that of lower-income folks. This means the rich are receiving a Social Security benefit for an extended period of time, and that this benefit, as a result of their higher annual income over their lifetime, also happens to be larger than that of the average American. That’s an under-the-radar, but nevertheless significant strain on the program.
Hey, shouldn’t we expect people who throw around “upper echelon,” well-to-do” and “rich” in their writing to define those words and to consider them in both individual and household terms especially relative to Social Security?
As far as the well-to-do are concerned, it’s nothing new that higher income people live longer than lower income. Blaming that on lack of preventive care and medicine is a tenuous assumption. There are many factors. But then we have this conclusion “and that this benefit, as a result of their higher annual income over their lifetime, also happens to be larger than that of the average American.” Yup, earn more (up to the taxable wage limit) than the average American and your benefit will be higher and so will the taxes you paid. Hey, get married a year before you start benefits and you get a 50% household income boost for which you paid no additional taxes.
But there is more. Asian Americans have a life expectancy over seven years longer than white Americans? Are we going to factor in race too? Of course not.
It’s so easy to slant the facts in favor of your goals.